Yield Expectations and the August USDA REPORT
Aug 07, 2014
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Despite good rains, the market mentality in the grains seems to have changed a little this week compared to weeks past. Price action in corn, wheat and soybeans are reflecting this change with all three higher on the week as of the close on Thursday. This change seems to be happening, maybe not so coincidentally, at the same time that analysts are releasing USDA report estimates. What does this mean for the August 12th USDA WASDE report?
Last Friday I was on my way to South Bend, Indiana to do USFR and AgDay when I got caught in what seemed like a monsoon (the fact that I was driving way too fast to try to get to SB on time didn't help). When I did get to South Bend (15 minutes late, sorry guys!) I looked at markets and saw corn and soybeans sharply lower and making new lows. I then proceeded to get mic'd up and get ready for the cameras. I walked through those doors with the intention of saying that the market was in the process of factoring in national average yield figures that were way too high, especially for corn. And, when I did the unanimous response was surprise. I was talking about a 168.9 national average corn yield compared to the widely accepted 174 that so many had been talking about and I said I was not sure we would see a record soybean yield this year. Last week saying these things made me a contrarian thinker, a rouge if you will. This week... not so much.
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On Monday a well followed and major private analyst came out with yield projections of 168 for corn and 44.5 for soybeans. This was well below what the rest of the market had been talking about and even a little lower then numbers we are projecting. In the days that followed we started to get the average trade estimates from the various news outlets and surprise, it showed a lot more diversity then the 174-176 bushel and acre range we had been hearing about last week. It's funny sometimes how a market audience sometimes has selective hearing.
As we head into Tuesday's USDA WASDE report we have a wide range in trade guesses for yields, production and ending stocks. It is not just the super sized numbers we were hearing last week and it may very well be a sign that for at least some analysts the market mentality is shifting. This also may go a long way to toning down market expectations as a whole. In my opinion it is a good thing that our expectations are coming back to earth a bit other wise we may have set ourselves up for a shock on this report. Now, with the wide range of guesses someone will be surprised and someone will say "I told you so" but there will at least be a two sided market and we will get to trade the numbers for what they are.
For what it's worth we think we have a chance at getting a Bullish versus expectations report on Tuesday. The super sized yield expectations are still out there even though they are not the only numbers we are hearing anymore. This has translated into a large range of estimates but it has also driven the average trade guess up. For corn in particular, where the average trade guess is looking for a 233 million bushel increase in ending stocks, we could be in a position where bearish expectations may be too high.
For example, what if the USDA puts out a 1.905 billion bushel carry over estimate (our estimate btw)? This would be 129 million bushels below expectations which logic would suggest would get a bullish reaction. But is a 1.905 billion bushel corn carry over really bullish? Have we factored in a larger corn carry over at this point? I would argue no. Even with a 1.905 billion bushel carry over we could justify $3.30 - $3.50 corn. I would not argue with a rally in grains at this point, however I do wonder if a bullish versus expectations report is good for the market.
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December Corn Daily chart:
November Soybeans Daily chart:
December Wheat Daily chart:
All this means that speculators should be looking for opportunities and producers need to look to lock up some prices. Give me a call for some ideas. In particular, producers looking to hedge all or a portion of their production may be rather interested in some of the options / options-futures strategies that I am currently using.
In my mind there has to be a balance. Neither technical nor fundamental analysis alone is enough to be consistent. Please give me a call for a trade recommendation, and we can put together a trade strategy tailored to your needs. Be safe!
Ted Seifried (312) 277-0113 or email@example.com
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